Apple Profit Rises 94% on Growing Global IPhone Demand

By Adam Satariano -
Apr 24, 2012

Apple Inc. (AAPL) profit almost doubled
last quarter, reflecting robust demand for the iPhone in China
and purchases of a new version of the iPad, allaying the growth
concerns that sliced shares 12 percent in two weeks.

Net income in the fiscal second quarter climbed 94 percent
to $11.6 billion, or $12.30 a share, as sales rose 59 percent to
$39.2 billion, Cupertino, California-based Apple said today in a
statement. Analysts had predicted profit of $10.02 a share on
revenue of $36.9 billion, data compiled by Bloomberg show.

Chief Executive Officer Tim Cook is relying more on regions
outside the U.S. for sales growth. Apple sold 35.1 million
iPhones in the period after releasing the latest model in China
and 21 other countries in January. That helped make up for sales
declines from the previous quarter at the top U.S. mobile-phone
carriers, Verizon Wireless and AT&T Inc. It also quelled
speculation that Apple’s growth pace may slacken.

“This report should erase any doubt in investors’ minds
that this company can’t continue to deliver,” said Jack Ablin,
chief investment officer of Harris Private Bank in Chicago,
which oversees about $60 billion, including Apple shares. “It’s
astounding.”

Apple rose as much as 7.8 percent to $604.22 in extended
trading, after having dipped 2 percent to $560.28 at the close
in New York.

iPad Sales

The company sold 11.8 million units of the iPad, which was
updated last month to include a high-definition screen and
faster processor. Apple has sold 67 million iPads since their
debuted in 2010. It took the company 24 years to reach that
milestone with the Mac computer, Cook told analysts.

Analysts surveyed by Bloomberg on average predicted Apple
would sell 11.9 million iPads and 31.2 million iPhones.

The company’s shares had tumbled $75.95 since a record
close of $636.23 on April 9 amid reports that indicated a
possible shortage in key components for its mobile devices and
showed a decline in iPhone sales at wireless carriers. Some
traders also took cues from so-called technical indicators that
use historical trends to predict stock movements.

The results released today add to evidence of a rebound in
some pockets of the economy, lifting results for other
technology bellwethers. Microsoft Corp., the top software maker,
last week reported better-than-expected corporate purchases of
computers, while Texas Instruments Inc., the biggest maker of
analog chips, yesterday indicated robust demand for a range of
electronics. International Business Machines Corp, the world’s
biggest computer-services provider, also reported higher profit.

Rising China Incomes

For Apple, China has made up a growing slice of results
since the introduction of the iPhone there in 2009. The most
populous country accounted for $7.9 billion of revenue, 20
percent of the total, Cook said on the call with analysts.
That’s three times the level for a year earlier, Cook said.

“China has been a very fast-growing region for them,”
said Abhey Lamba, an analyst at Mizuho Securities USA Inc. in
New York. “There’s more disposable income, strong demand for
high-end products and their penetration has been very low in
that market. They have been highlighting that region as one of
their focus areas.”

Cook visited China last month, meeting with government
officials and touring plants where the company’s products are
built. The visit came just as a labor group said workers at
those facilities, which are operated by Foxconn Technology
Group, were violating local laws for excessive work hours. Cook
has vowed to improve conditions at the facilities.

Growing Cash Pile

“There is tremendous opportunity for companies that
understand China,” Cook said on the call. “We’re doing
everything we can to understand it and serve the market as good
as we can.”

The company is in talks to sell the iPhone through China
Mobile Ltd., the country’s largest carrier. The opportunity to
market the iPhone to China Mobile’s more than 600 million
subscribers would give Apple added scope for growth in Asia.

Apple sold 4 million Mac computers and 7.7 million iPods,
compared with 4.5 million Macs and 7 million iPods projected by
analysts. Apple added to its cash hoard during the quarter. The
company said it now has $110.2 billion in cash and investments
on its balance sheet. Part of that sum will be returned to
investors starting later this year, when Apple plans to start
paying a dividend and buying back shares.

New IPhone?

Looking ahead to results for the current quarter, Apple
forecast revenue of about $34 billion and profit of $8.68 a
share. That compares with average analysts’ predictions for
sales of $37.5 billion and profit of $9.96 a share.

The results will be lower because Apple doesn’t expect to
sell as many iPhones in the quarter now under way, said Peter Oppenheimer, Apple’s chief financial officer. Customers often
hold off on purchases of the iPhone in the months before Apple
releases an upgrade. Analysts including Chris Whitmore of
Deutsche Bank AG have predicted that Apple will introduce a new
iteration of the handset later this year.

Cook, who took over for late co-founder Steve Jobs last
year, hinted at new products that will be released.

“You’re going to see a lot more of the kind of innovation
that only Apple can deliver,” Cook said in a statement.

Cook also discussed one product Apple won’t be making. He
said Apple doesn’t intend to follow the lead of Microsoft, which
is introducing a new operating system that will run on
smartphones, tablets and personal computers. Cook said users
prefer to have different experiences on mobile devices and PCs.

Toaster-Fridge Convergence

“You can converge a toaster and a refrigerator, but those
things are probably not going to be pleasing to the user,” Cook
said.

Apple benefited last quarter from lower operational costs,
including lower component prices. Gross margin, the percentage
of sales remaining after deducting costs of production, was 47.4
percent, compared with 41.4 percent a year earlier.

In China and elsewhere around the world, Apple is in the
midst of a growing rivalry with Samsung Electronics Co. (005930), Asia’s
largest consumer-electronics maker. While Samsung is a supplier
of components for Apple devices, it also is among the biggest
makers of products that run Google Inc.’s Android software.
Earlier this month, Samsung reported profit rose to a quarterly
record of 5.8 trillion won ($5.1 billion).

Samsung is one of several companies entangled in patent
litigation with Apple in the U.S., Europe and Asia.

Cook said that while he’d prefer to settle the lawsuits
than battle in court, he didn’t give any details on when such a
deal may be reached.

“We need people to invent their own stuff,” Cook said.

Apple’s results contrast with those of Research In Motion
Ltd. (RIMM) and Nokia Oyj, which have cut jobs and reorganized
operations after falling behind in smartphone sales.

Apple’s growth also is bringing more government scrutiny.
The U.S. Justice Department is suing Apple for allegedly
colluding with book publishers to raise the price of e-books.
Apple has denied wrongdoing.